Academic journal article Journal of Accountancy

States Look to Tax Cyberspace

Academic journal article Journal of Accountancy

States Look to Tax Cyberspace

Article excerpt

States would like to collect sales tax for on-line computer services, but they first must prove a nexus exists for such services.

In Quill v. North Carolina, 1992, the Supreme Court determined guidelines for a state nexus. The Court held that a service physically present within the state is taxable but that a service present in the state only via U.S. mails or common carrier is tax exempt. Paull Mines, general counsel of the Multistate Tax Commission (MTC), told the Journal that on-line services may fall into a gray area between the two guidelines, but "there are strong reasons to conclude that states have a clear nexus with on-line services.

"Some people contend that the MTC is trying to prove this by arguing that the flow of electrons constitutes a physical presence," continued Mines." The laws of physics say those electrons have mass and thus constitute physical presence, but that is not the basis of our argument."

Mines said that most on-line services have local numbers that people can dial to access them. "These local numbers are established by contract and are used to promote or maintain the market in a taxing state," said Mines. …

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